With just two days to go for the Budget, foreign investors are looking to the Finance Minister P. Chidambaram to provide clarity in tax laws besides a stable tax regime.
They are a much harried lot, smarting under the Income-Tax Department's aggressive stance and high pitch transfer pricing adjustments.
Luring foreign pension funds
The Finance Minister is also expected to throw the door wide open for foreign pension funds to invest in India.
A major focus will be on the controversial retrospective amendments to bring indirect share transfers to tax.
Many expect that he will make the last year’s Budget provision on indirect transfers prospective to soften the blow on foreign investors.
Shome panel – middle path
The implementation of general anti-avoidance rules will also get deferred to April 1, 2016. Indications are that Chidambaram will walk the middle path on the Shome Committee recommendations as regards taxation of offshore transfer of shares with underlying Indian assets.
With the Sanofi Aventis ruling going against the Revenue Department, he has little room to manoeuvre, especially when the transaction related to a jurisdiction with which India has a DTAA.
For a Vodafone type transaction – involving a maze of companies and transaction through a jurisdiction where India has no DTAA – Chidambaram may relent and announce waiver of penalty and some interest if the main tax demand is paid.
Meanwhile, given the skittishness of the stock markets, Chidambaram is unlikely to do anything that will upset the mood of market participants.
This would mean that the Government is unlikely to go to a regime where long-term capital gains is brought to tax.
srivats.kr@thehindu.co.in